ASIC has accepted an enforceable undertaking (EU) from ACE Insurance Limited (ACE Insurance) following an investigation into Combined Insurance, a division of ACE Insurance.
Under the EU, ACE Insurance is required to appoint an independent expert to review Combined's compliance systems, implement a remediation plan to compensate affected consumers and make a donation of $1 million to financial counselling and financial literacy initiatives.
ACE Insurance contracted salespeople who travelled door-to-door selling and renewing Combined Insurance products. The majority of policies were sold in regional communities Australia wide.
The EU follows an in-depth investigation by ASIC into misconduct by those salespeople, including the making of misleading statements to consumers and the sale of unsuitable Combined insurance policies. ASIC's investigation also focussed on allegations of systemic failures within the Combined Insurance division including poor culture and failure to ensure consumers were given appropriate advice.
Under the EU, ACE Insurance admitted that there had been contraventions of the Corporations Act and ASIC Act, including s.961L of the Corporations Act which required ACE Insurance to take reasonable steps to ensure its representatives complied with the best interests laws which fully came into effect on 1 July 2013 under the Future of Financial Advice (FOFA) reforms.
As a part of the EU, ACE Insurance has admitted that in the period from 1 January 2012 to 30 June 2014 a limited number of Authorised Representatives (ARs) in the Combined Insurance division engaged in some of the following conduct:
1. Overselling of Policies – ARs sold policies to consumers which duplicated coverage already held by the consumer and exceeded the underwriting limits imposed by Combined;
2. Twisting/Churning of Policies – ARs encouraged consumers to cancel their existing policies and take up new policies which resulted in a change of coverage for no benefit, and on some occasions a detriment;
3. Selling of Unsuitable Policies –ARs advised consumers to take up policies under which they would not be eligible for coverage, as they:
a. were ineligible to hold a Combined policy (such as disability pensioners), or
b. sought coverage for potential injury caused as a result of activities that were specifically excluded under the Policy (such as professional sports and off-road dirt-bike riding).
ACE Insurance further admitted that during this period it failed, in certain respects, to effectively implement a framework to foster and consistently maintain a culture of compliance within Combined, demonstrated by:
- failure to prepare adequate compliance policies and procedures
- failure to take action to address identified compliance risks
- failure to have adequate systems in place to be able to investigate and supervise compliance by ARs with financial services laws; and
- failure to have adequate procedures in place to ensure that Combined’s consumers were given appropriate financial advice.
ASIC Deputy Chairman Peter Kell said: 'ACE Insurance is a clear case of how poor culture and conflicts of interest in remuneration have led to poor conduct, resulting in a financial cost to both consumers and the organisation alike. ASIC's priority in this significant investigation was the affected consumers, and we have pursued the best result possible for those consumers.'
ASIC acknowledges the cooperation of ACE Insurance in resolving this matter. Under the EU, ACE Insurance has undertaken not to provide personal advice in relation to Combined products and confirmed it will cease writing new Combined business. ASIC notes ACE's announcement on 15 February 2016 that Combined Insurance will cease writing new business in Australia on 22 April 2016 and that the change will not impact existing policyholders.
ACE Limited is a Swiss-incorporated holding company of the ACE Group of Companies and is listed on the New York Stock Exchange. The Australian arm of the ACE Group, ACE Insurance is the holder of an Australian financial services licence (AFS licence).
In 2008, ACE Insurance acquired the Australian branch of Combined Insurance Company of America with the transfer taking effect from 2010.
The Combined Insurance division operates a business which includes the sale of sickness and accident insurance policies to individual consumers, with its sale force being largely independent contractors who were appointed as ARs or sub-AR under its AFS licence. The ARs were largely remunerated on a commission only basis.
ASIC has also permanently banned a former AR of ACE Insurance in the Combined division from the financial services industry (refer 15-184 MR).